The role of chromosomal proteins in determining chromosomal structure and regulating cellular differentiation in normal and transformed cells is being investi-gated. The gene coding for nonhistone chromosomal protein HMG-14 was found to be located on human chromosome 21 and the protein is overexpressed in tissues and cells taken from Down's syndrome patients with trisomy 21. To test the involvement of this protein in the etiology of Down's syndrome, we transfected C2 mouse myoblasts with plasmids expressing HMG under the control of dexamethasone sensitive MMTV promoter. Induction of HMG-14 synthesis suppressed the expression of key myogenic factors and inhibited myogenesis. The results suggest that cellular differentiation requires controlled expression of HMG-14 and thus are relevant to the understanding of the molecular basis of the Down's syndrome phenotype. Using Xenopus egg extracts we found that HMG-17 is deposited on chromatin during replication and that its presence may affect nucleosome assembly. Deposition of HMG-17 unto chromatin subunits, which are depleted of histones H2A and H2B, stabilizes the chromatin structure and increases the transcription potential of pol III genes. These studies are relevant to understanding the mechanisms involved in the generation of active chromatin. DNase I and hydroxyradical footprinting experiments indicate that HMG-17 binds in the major groove at the nucleosomal dyad axis. These studies are relevant to the to the understanding of the interaction of regulatory factors with chromatin subunits and are pertinent to the elucidation of various aspects of gene regulation.